Thursday, October 09, 2008

The Next Bailout--States?

Its Bailout Fever Baby (you have to read that like Dick Vitale might say it).

The federal government has bailed out the financial services industry, it has tried to bail out taxpayers with one stimulus package and Nancy Pelosi wants to do another stimulus package. Next up--state governments.

This story lists ten states with big budget shortfalls and hints that they may decide to take a seat at the federal trough to help them overcome their budget shortfalls.

The most cited reason is the housing market dive, which decreased tax revenues. California, the fifth largest economy in the world, is looking at a $22 billion dollar shortfall. The question will, what will states do? Well it depends on the nature of the state government. My own state, Maryland is on the list and this will be the second year in a row in which the budget short fall is over $1 billion. What did the General Assembly do last year? Passed a $1.35 billion tax increase and cut spending by $277 billion.

This year? Well the state has already cut positions in higher education and instituted a hiring freeze, but that won't come close to solving the problem. There will be increased pressure to pass a slots referndum to provide revenue for the state. The slots money is supposed to go to education, but assuming it does, all the slots money will do is get the General Assembly addicted to that revenue stream. You can bet that the overwhelmingly Democratic legislature will not cut spending on the level it needs to in order to close the shortfall and another tax increase is likely.

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